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Cash & Working Capital

Building an In-House Bank

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January 12, 2007

Treasury’s quest to gain better control and visibility over cash will proceed along two paths this year:

1) Automation Levers. Treasury will look for more integrated system solutions to gain a more direct view into global cash (see p. 16); and

2) Internal Infrastructure. It will also construct new, often internal (via an in-house bank, or IHB) liquidity structures to minimize the need to collect external data and tighten control over global corporate cash.

2006 Review. While the traditional tax advantages for setting up an IHB have mostly disappeared, the operational benefits have only been magnified because treasury is looking for (1) ways to streamline transaction execution; (2) strategies that reduce the volume and cost of transaction execution; and (3) ways to increase central control over cash, which is a growing corporate asset.

Our research in 2006 revealed that a growing share of companies are constructing IHBs, and some are even taking full control over IHBs that were previously run by banks. The results were not the same across our US and European peer groups: 80 percent of the members of the NeuGroup’s European Treasurers’ Peer Group (EuroTPG) operated an IHB in 2006, whereas only 40 percent of their US counterparts did.

2007 Preview. This year, the IHB building boom will continue and the US will begin to catch up. The potential benefits have also begun to attract the attention of senior executives (vs. functional heads).

While IHBs dominated the agendas of functional groups last year, the topic is on the radar screen for our VP treasurers groups for 2007. “More companies will have internal pools,” one practitioner noted at a recent peer group meeting.

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